ETF Battles: VEA Is the Incumbent—But Is AVDE the Upgrade?

Well, international stocks are the spice that might be missing from your investment portfolio.

And if the outperformance of international stocks over US this year doesn't yet have your attention, then allow me to awaken you from your slumber.

Develop international stock ETFs are sizzling, and they've been sizzling by a wide margin.

Today's ETF battle is a head-to-head contest between Avantis and Vanguard.

So, who wins?

Well, let's find out right after this.

I'm Ronda Legy.

It's great to see you again.

You're watching season 6 of ETF Battles.

Keep your awesome ETF Battle suggestions coming.

We've had some great matchups.

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So today's ETF matchup was requested uh to us by a viewer named Ibraim.

Ibraim is a loyal viewer and uh he wanted to see a matchup between international equity ETFs ETFs tracking them from Avantis.

Uh we've got ADVE and Vanguard Va.

And uh this is a interesting matchup and certainly one that we can do and helping us to sort through the ma mecca of madness.

We've got uh Mike Akens with ETF Action and Aan Ferris with Bloomberg.

Two of the best in the ETF business.

Guys, great to see you.

Well, thanks for that intro.

Nice to see you guys.

Yeah, great to see everybody.

Thanks for having me, Ron.

So, we're going to go through our four battle categories and give each one of you an opportunity to weigh in.

We've also got our mystery battle category where you can pick a mystery factor or thing that you feel is crucial.

Uh you can also nominate wild card ETFs.

We'll see if our judges come up with any.

And keep in mind none of the battle outcomes are ever predetermined and known in advance by myself or our judges.

So the first category is cost.

And we're going to start with Aan.

Please get us started.

Uh great.

Well, I don't I can't think of any category where you're going to beat Vanguard on cost, right?

That's just the reality. is three basis points versus 23 basis points for the Advantis product.

That said, 23 bips for active, they're almost essentially becoming sort of like the Vanguard-esque inactive because that is pretty cheap uh in and you know where sort of the average fee in the whole industry uh breaks.

Um but overall you you can't you know these are massive products 156 billion in the Vanguard one almost seven in the Avantis which is also really impressive but overall three is just basically free.

So that's just it's too much of a gap to not give this to Vanguard.

Thank you very much, Ethan.

That's a strong start.

Mike, you're up next.

How do you see it?

You bet.

I mean, I always say uh anytime we do these cost battles and Vanguard's involved, the other the other the other issuer is bringing a knife to a gun battle.

Um so there's just no beating it.

I I don't have anything to add.

It's um it's basically free access to international markets uh via the Vanguard product.

But definitely Avantis um is a very lowcost product.

I mean just think of that you're getting active management in a tax efficient rapper for 23 basis points to not the US markets but to international markets.

Um you just can't replicate it.

Uh the ETF rapper is undefeated when it comes to cost and efficiency and that's all I would add to that.

But yes, VA is my winner.

Exposure strategy is our next category.

Mike, you're still up.

So break it down for us.

Yeah.

So I mean these products are extremely similar, right?

I mean, VA owns the market capitalization of a developed world.

Um, Avantis targets the market capitalization of a developed world, but then applies some multifactor screening on an ongoing basis to generate generally kind of a little bit of a value tilt, a little bit of a size tilt um to that overall, but it's not active in terms of stock selection as you'd traditionally think of it.

Um, it's not going and getting a concentrated portfolio of their best picks.

It's basically trying to optimize that process of creating a more efficient um access by screening on an ongoing basis across that universe.

Um so the strategies are incredibly simil similar.

Tracking error I would say is going to be very very small between these two funds.

Um they have been historically it will be going forward.

Um, so you're just kind of playing on the edges a little bit.

And the question is, does that constant refinement by Avantis um get you 20 basis points of value?

Um, and we'll talk about that in the next segment.

But when it comes to uh my winner in this category, I actually like applying a lowcost ongoing uh filter to the market.

It can create some value over the long term.

Um, you're not paying a significant amount for it.

So I do think um within this international large cap space while not a huge amount of value is going to be added through it I think there's enough there to potentially overcome that uh basis point.

So I'll give the win to AVDE on exposure strategy uh overlaying their their quant strategy on top of that area of the market.

Thank you for that contrarian opinion Mike.

It's quite refreshing.

Aan you're up next with your opinion.

Give us your analysis.

International is definitely one of the areas where you could maybe see some value add from active.

And like Mike was saying, this is not super concentrated.

So, you're still getting about 3,000 holdings in both of these ETFs.

So, they're both very, very broad.

You have a value tilt.

You're getting a little bit size tilt like Mike mentioned in the Advantis one.

Your top weights are going to be country weights are going to be about the same.

It's Japan, it's the UK, it's Canada.

The only difference is you're getting Korea in the Vanguard fund. you're not getting that in advantage.

It might not matter that much.

It's only a 3% weight, but just something to keep in mind about sort of country definitions.

Um, uh, you you do get a little bit of differences in some of the sector bets because of the tilts, right?

So, you tend to end up being more overweight banks with Avantis and Pharma, which that stuff has actually worked out well right now.

But uh so you do have a little bit of a factor bias, a little bit of a sector bias, but overall it seems like for that little tracking error gap that Mike had mentioned, they're they're getting a lot of uh juice out of that.

So I like that and I think I think it's an area that I like active management.

So again, very close, both very wellrun.

You're getting a lot of the similar country exposures, but I think you give going to give the edge here to the Avantis uh product.

Well, that takes us next to performance and uh eighth in Europe.

So, how do these two ETFs compare?

Something you mentioned in the beginning is that how International has been doing really well.

So, with either one of these, you're hitting all-time highs in these ETF.

So, you you you would have been great with either one of them, but you're you are seeing the Aventist products start to separate away from it.

So, it's beating the Vanguard one on a year to date, a one year, a three year, a 5year, pick any date, it's starting to really sort of uh have some separation there.

So you're seeing that even for that 20 basis points difference in fee, you're getting some meaningful outperformance.

And I think that goes back to how active tends to work a little bit better in these markets.

So um with that, I think it's just hard to argue on the performance aspect for that.

Advantis has a advantage here and it's really starting to get some separation off of just the Vanguard one.

So I will give performance to the uh Avantis product.

All right.

Very good.

And when that performance happen happens that's referred to correct me judges if I'm wrong as al alpha is that correct that alpha is that uh that's the alpha and omega that's Greek isn't it yeah it is all right the beginning and the end that's right and when it doesn't happen we we refer to it as alalfa it should be alpha but I call it alalfpha great job on that one Uh Mike, you're up next.

Break it down for us in terms of performance between these two ETFs.

How do you see it?

Yeah, I really can't add a lot.

I mean, the 135 since inception all goes to Avantis.

So, no matter how you're looking at it on performance basis, it has um eaked out um additional returns.

You know, 300 basis points on the one here.

Um and that's, you know, that's that's significant in terms of overcoming its 20 basis point um additional expense ratio.

Um, I guess I can add in since you want to go down the the stats, you know, on the three-year it's got an alpha of 1.08% relative to VA.

Um, you know, it's got up capture in line, but a significantly lower down capture at only 94%.

So, it's really picking up that alpha, if you will, in the last three years on that downside capture.

Um, which might be a little bit more of that defensive tilt, uh, a little bit that value.

Um, but in general, the, you know, it's got a pretty good track record. um it's not brand new.

Um it's done it consistently.

So your information ratio is a 0.52 which is your consistency of outperformance.

It's a pretty impressive um uh figure within the ETF space for a category as large as this.

So I think uh you know I got to give the the nod to the team over at Vantis on putting together and to this point managing a very good product.

That takes us next to our mystery battle category where our judges could pick a single or multiple factors that they think are meaningful for today's contest.

So, Mike, what is your mystery battle category and which of these two ETFs wins it?

Well, I think it kind of brings us into this whole idea of active versus passive and the debate of active passive and Avantis is just like dimensional a really good example where I would not consider them true active um bottomup stock selection um you know fundamental analysis.

It's a quant strategy but being implemented on an active basis and I think that's the key I want to focus in on.

Um, what one of one of the reasons I'm so excited about active management at a at the appropriate cost, at a well cost, you know, where you're you're still competing on fees, you're not charging a 100 basis points plus on these products, but you're charging a a reasonable fee is because one of my biggest um knocks on factor passive, so like your more rigid factor strategies that are rebalancing on a quarterly basis or a monthly basis or an annual basis, is how do you implement that without um moving the markets, right?

And we've seen this with some really big pure passive ETFs where they have to rebalance um out of the security into a new security all at once.

And in doing that, the market's not dumb.

They see it coming.

They get in front of it and it hurts the performance of the index, right?

So, it's always like, you know, the why the back test did so well.

Why when I put it into action did it not do as well?

And part of that is because you have to actually implement an index is not investable.

You actually have to implement this.

And what active does, I think, in a lot of degrees is it bridges that gap between these hard pressed rebalances that can cause bad execution and hurt your performance drag on it to being like, look, we're doing a similar strategy, similar screens to your pure passive product, but we're implementing it all the time.

We're we're making the choice on when to hit that buy button, when to hit that sell button.

We can do it over three months if we want to.

We can't we're not telling the market what we're doing.

And I think in my mind when I look at active I think of active as factor strategies generally to the degree to which they're doing it varies significantly like avantis is very small whereas some other active is very large um bats but the idea of the implementation um I think is really interesting and I think avantis and dimensional because they are quantbased strategies really prove that out um and so my mystery category is implementation active versus passive and give the win to ABDE for how well they're able to implement their strategies without that rigid contracts of quarterly rebalances or annual rebalances.

Great points.

Thank you, Mike.

Ethan, you're up next.

What is your mystery bat category and which of these two ETFs wins it?

Really great.

Mike, I mean, honestly, when I was looking for one, it was really hard to find because honestly, these are both really great products.

They're very well-run.

They don't pay out capital gain distributions.

You get 3,000 stocks.

Um, so I found one and the the kicker, it's a very small one, but it's on yield and sort of the how um often they pay out the dividends.

You get a slightly better yield in VA, not by much, but it pays it out quarterly versus only semiannually for the Avantis product.

Not a huge I don't think it's a huge difference, but it's just if that's something that's important to you, the frequency of the payouts, you're not going to get it as often with the Avantis product.

And again, a slightly better yield with DEA.

I know that's oftentimes not why people buy international, but um just for that that small mystery category, which is yield, I will give this one to the Vanguard product.

I think it just barely edges it out.

All right.

Well, now we move to the part of the program where our judges can give us their overall battle winner.

So, how will this go down?

Aan, your final choice.

Give it to us.

Yeah, it's a tough one because they're both you would have done fine with either one of them, but um to a lot of the points that Mike was saying before about sort of the implementation of active and the way they're doing it and for what you're getting at 23 bips, it's it's Avantis is a really great product.

Um and and the performance is starting to um uh shine in that product.

So I think that uh overall I think the Avantis product is really great.

I like active in the international space.

Uh you know they they've done well.

They've already got $7 billion in assets, so it's a really tight one.

I think you're okay with either, but I I if I had to pick one, it would be the uh Avantis.

Mike, your final chance to weigh in with your overall winner.

Yeah, I mean, I you can never go wrong building a diversified portfolio of Vanguard products or lowcost Eyesshares or lowcost State Street or whatever it may be.

Um the you know, strategically allocating via beta strategies if you just want to own the market is an excellent way to go about it.

Um if you are looking to improve on the edges and potentially add um just remember anytime you potentially add alpha you potentially are going to underperform as well right so tracking error goes both ways but if you're if you believe in in a strategy which I think there are strategies that can add um in a repeatable way a little bit of alpha over full market cycles um I think advantage is one of them and to that extent um you know I'm embracing the lowcost active um concept to the extent And it is low cost to the extent that it's um uh you got to do your due diligence, right?

There's 450 ETF issuers.

That's right.

You heard that correct. 450 um brands out there in the marketplace today.

So you if you're going to get into active, you got to do your research on the managers.

But in this case, I think ABD does a great job and I give it to it as my overall winner.

Well, according to my final battle scorecard, I think we have a consensus choice.

ADVE from Advantis is the winner and uh it won on most categories with the exception of cost.

Our judges brought out some great points.

You're getting active management at a reasonable fee and I think that was a very good pointed out by both Aan and Mike.

And of course ADVE has that value and size tilt.

It will differ from uh the MSEI developed international index but uh as our judges mentioned you know it might be worth getting uh that different exposure for a a strategy at a reasonable fee and especially if it can outperform and certainly the performance has been there for ADVE um quite impressive and uh so keep this one in your back pocket.

This was a great uh matchup on today's program and uh thank you so much Ibraim uh our viewer for uh recommending it.

Great great work by both of our judges, Mike and Aan.

We couldn't have done it without you.

Yeah.

Thanks, guys.

This was great.

Yep.

Enjoyed it.

Yeah.

Be sure to hit the description section below.

We've got links to both of our judges.

Uh get in touch.

Uh, of course, Mike over there at ETF Action doing lots of uh interesting and innovative stuff in the ETF marketplace with ETF portfolios and data.

Uh, also Aan at Bloomberg uh doing a lot of good stuff on the ETF research side.

So again, get in touch with our judges and of course our program sponsor.

Be sure to go to direction.com and check out their everexpanding ETF lineup which also includes single stock ETFs which have been booming uh single stock ETFs linked to companies like Apple, Nvidia, Tesla and many others.

So check that out at direction.com.

Well, send me your ETF battle requests in the comment section below.

Keep them coming and make them good.

Give me your ETF ticker symbols.

What would you like to see on our next show?

Thanks for watching.

I'm Ronda Ley.

This is ETF Battles.

We'll see you again.